Push The Handle, Raise The Chain, There Goes The Dollar…
Since the 2008 bank bailouts, government spending, deficits and debt have hit historic proportions, with no end in sight. US debt was around $9 trillion in 2008, and will soon hit $45 trillion. How can the political class justify such irresponsible, outrageous behavior?
Congresswoman Alexandria Ocasio-Cortez (AOC) (former waitress and bartender) advocates the Modern Monetary Theory (MMT). Investopedia defines MMT this way:
“A macroeconomic theory that says that countries that control their own currencies, like the US, are not constrained by revenues when it comes to government spending.
|“Only the naive inflationists could believe that government could enrich mankind through fiat money.”
— Ludwig von Mises
…. (MMT) decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency.
Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.”
Don’t buy the stupid political dogfight; when it comes to MMT, they are all to blame. The hoopla about raising the debt ceiling is a farce, Congress readily agrees that spending our money is in their best interest – even if it means creating dollars out of thin air.
Storm Clouds Brewing
Their misdeeds hang over us like huge dark clouds, ready to storm at any moment.
Expert Chuck Butler refers to MMT as the “Magic Money Tree.” The government floods the system with magic money, citizens get free stuff, politically connected get rich, the market soars, the banks make trillions…what could possibly go wrong? It’s a fun party, until it stops!
Mainstream America suffers the headache, and the mess, of the inevitable inflation.
Politicians ignore a major flaw in the theory; the US does not live in a vacuum; other nations no longer want, or need our worthless “Magic Money.”
Inflation is a government policy sponsored by the entire political class. If printing money created wealth, Argentina, Venezuela and Zimbabwe would be the richest countries on earth. Politicos think they are smarter than the citizens, constantly seeking the easy way out, as opposed to governing responsibly.
Ludwig von Mises warned:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Warning alarms are sounding, many believe the inevitable currency collapse is now imminent. The government has a monopoly on printing money and soon it becomes just as worthless.
I contacted friend and expert Chuck Butler. There is a lot going on…
DENNIS: Chuck, once again, thanks for your time in helping our readers understand what is happening in the real world.
Let’s focus on the problem, causes, expectations, and discuss what our readers, ordinary middle-class citizens, can do to help protect themselves.
We can start with the Mises comment, “voluntary abandonment of further credit expansion.” You’ve said many times that government deficit spending flat has to STOP! While the Fed is raising rates, Congress, devoid of common sense, just keeps spending and the deficit skyrockets.
Can the Fed really bring inflation down to 2%, and keep it there, without Congress getting spending under control?
Dennis, the easiest way to get inflation down to 2%, (which is still too high) is to STOP deficit spending, and raise interest rates above the rate of inflation. I mean “real inflation” not the monthly reported numbers that are full of hedonic adjustments.
The problem with raising interest rates higher than they currently are is the cost of financing this debt. The U.S. sells Treasury bonds and bills to finance their debt, paying interest to the lender. For over a decade, interest rates were near zero, keeping interest costs low.
Now interest rates are rising, and the debt service cost has skyrocketed higher, taking a major portion of our annual budget. Soon, we’ll spend more on interest than we do on Defense.
If the world is going to continue to finance our debt, they will demand even higher interest rates. Does the government implement massive tax increases and/or reduce discretionary spending? Choices will have to be made that will affect different folks, and mainstream America will suffer the consequences.
It will be terribly difficult to get inflation down below the 2% target without major changes in government policy.
DENNIS: Bill Bonner recently estimated:
“Right now, based on the historical relationship between output (GDP) and debt, Americans owe about $50 trillion too much. That extra debt is a threat and a burden. It can ruin debtors and creditors alike….”
The government, corporate America, and individuals are feeling the pinch of higher interest rates. The days of easy money are behind us (for the moment). A lot of debt cannot, and will not be paid back.
Bonner feels the debt will go away through default or even more inflation.
What do you see happening?
CHUCK: I hate to say this, but I feel that we as a country will come to the fork in the road, and have to go down the default road…
In 2021, I wrote a Pfennig saying that I was convinced that the only way out of this debt mess was a default. I’m still sure of that. If I am right, bond yields will be soaring (like a Banana Republic when they default) along with inflation; the dollar will no longer be the reserve currency of the world.
And that would mean that we have to pay much more for everything we buy!
DENNIS: The US is not the first empire to spend their way to extinction.
A graph from Ray Dalio about “The Changing World Order” got my attention.
He put an arrow where he feels we, as a nation, currently sit. We are in the middle of three steps; printing money, internal conflict and loss of reserve currency.
Do you agree with his assessment?
CHUCK: Yes, I do… I too read Ray Dalio’s book, and when I saw that graph, I said to myself, “WOW, only 4 steps from a new order.” We’re much closer to default and new order than I dreamed of in 2021.
Ray certainly did his homework, the research, going back hundreds of years to track different countries, regions, economic history, and each one that he researched had this track record as shown in this graph.
|“In the things that really matter – money and war – the elites of both parties are unified, as tight as a head gasket. President’s change – but the laws, regulations, bureaucracy, the Deep State, the wars and deficits don’t.”
— Bill Bonner
Very few people in the U.S. (other than readers of The Daily Pfennig, Miller on the Money, Bill Bonner, Paul Craig Roberts or Ray’s book) have any inkling something like this is on the horizon. I fear many will be stunned and shocked when it all happens, particularly when they realize their nest egg has been reduced to ashes.
I don’t want to sound like “Mr. Gloom and Doom,” but these are things that need to be said, and heard, by the masses. Major changes are coming and I fear they will not be pretty.
How do investors protect the value of their nest egg?
How do retirees pay their skyrocketing living costs?
Luckily there’s a proven way for you to stay ahead of inflation, just like 20,000+ investors are doing right now…
Here’s how you can be one of them. Click HERE for more information.
DENNIS: I have my own theoretical definition of the ideal world reserve currency:
“A world reserve currency earns that status by having a stable government, run responsibly, and trusted throughout the world by friends and enemies alike.
Governments can freely conduct trade with that currency – it is almost “as good as gold” in the eyes of the world. In some ways, it may be better because it doesn’t have to be redeemed, and trades freely because the nations of the world believe it is solid.”
At one time the USD came close to meeting that criterion – not anymore.
Recently Urs Vrijhof-Droese discussed the government’s reaction to Fitch downgrading the US credit rating, saying “the reactions that followed were packed with unreasonableness and arrogance.”
- Does my definition make sense?
- Who would want to hold trillions in our debt when it is rapidly losing buying power every day?
- The US is making no attempt to restrain spending, still printing money out of thin air, creating double-digit inflation. Does unreasonableness and arrogance apply?
CHUCK: In the best British accent I can muster… Yes, Dennis, by Jove you’ve nailed it! I’m not making light of the subject; I’m just trying to not sound like “Mr. Gloom and Doom”.
As to unreasonableness and arrogance – I understand how much of the world feels that way. Our government betrayed the trust of the world.
Dennis here! I emphasized with Chuck the need for readers to understand (in detail) the cause and consequences of our government’s action; following with very specific steps we can take to protect ourselves.
As always, Chuck delivered. I quickly realized it was impossible to cram all his thoughts in one short weekly column. Next week he delves deeper into what is coming and how significant it can be for all of us. Stay tuned, it’s a dandy….
A little help means a lot!
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On The Lighter Side
Last weekend Jo and I took a drive through the Indiana countryside, enjoying small towns like New Harmony, Wadesville and Poseyville. Real America!
She commented that the crops are ready to harvest, and it looks like a good year. We pulled over and she took a picture of a cornfield that will soon see a combine filling a truck with corn.
Jo began to reminisce about her childhood. “When I was a little girl, I’d go with daddy in the combine for hours and I loved it!” As a teenager, she progressed to driving the combine herself for many an afternoon. She tilted her head back and added, “I can still close my eyes and enjoy the smell of freshly harvested grain.”
We motored on to Jo’s hometown, New Harmony to enjoy the annual Kunstfest festival celebrating the harvest season. If I understand the sign, this is the 209th anniversary.
Jo saw several old friends as we walked down the street visiting all the various booths.
For the last couple weeks, we have had the windows open enjoying the nice fall Indiana air. In my best Mr. Rogers voice, I can truly say, “It’s a beautiful day in the neighborhood.”
Quote of the Week…
Some timely quotes on inflation:
- “I do not think it is an exaggeration to say history is largely a history of inflations engineered by governments for the gain of governments.” — Friedrich Hayek
- “What socialism, fascism and other ideologies of the left have in common is an assumption that some very wise people – like themselves – need to take decisions out of the hands of lesser people, like the rest of us, and impose those decisions by government fiat.” — Thomas Sowell
- “Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism.” — Ludwig von Mises
Friend Courtenay W. sent along one too good to pass up…
Two VERY active seniors (Jacob, age 92, and Mariam, age 89), living in ‘The Villages’ in Florida, are all excited about their decision to get married.
While strolling along discussing the wedding, they pass a drugstore and go in. Jacob addresses the man behind the counter:
Jacob: “Are you the owner?”
Jacob: “We’re about to get married. Do you sell heart medication?”
Pharmacist: “Of course we do.”
Jacob: “How about medicine for circulation?”
Pharmacist: “All kinds.”
Jacob: “Medicine for rheumatism?
Jacob: “Medicine for memory problems, arthritis and Alzheimer’s?”
Pharmacist: “Yes, a large variety. The works.”
Jacob: “What about vitamins, sleeping pills, medicine for heartburn, indigestion, Geritol, antidotes for Parkinson’s disease?”
Jacob: “You sell wheelchairs and walkers and canes?”
Pharmacist: “All speeds and sizes.”
Jacob: “Adult diapers?”
Pharmacist: “Sure, how can I help you?”
Jacob: “We’d like to use this store as our Bridal Registry.”
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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